Holding

Paper cores are component parts for the manufacture of paper rolls but not for sheet paper, and therefore the exemption from excise duty applies only to roll paper manufacture.

Summary

Star Paper Mills Ltd., a paper manufacturer, claimed exemption from excise duty on paper cores used in its production process, arguing that the cores were "component parts" under Notification No. 201/79. The Central Excise authorities rejected the claim, but the Appellate Collector allowed it; the Customs, Excise and Gold (Control) Appellate Tribunal reversed in favour of the revenue. The Supreme Court examined whether the use of paper cores was incidental or ancillary to the manufacture of paper, interpreting "manufacture" under Section 2(f) of the Central Excises and Salt Act, 1944 and referring to the dictionary meaning of "component". It held that paper cores are essential for the rewinding process in the manufacture of roll paper, making them constituent parts of roll paper, but they are not essential for sheet paper. Consequently, the exemption applies only to the manufacture of paper rolls, and the Court allowed the appeal to that extent, modifying the lower orders. Both parties were ordered to bear their own costs.

Issues considered

Whether paper cores used in the rewinding process constitute "component parts" within the meaning of Notification No. 201/79
Whether the use of paper cores is incidental or ancillary to the manufacture of paper rolls and/or sheet paper under Section 2(f) of the Central Excises and Salt Act, 1944

Legislation cited

Central Excises and Salt Act, 1944s. 2(f), s. 3, s. 35L

Subjects

excise dutycomponent partsmanufacturepaper coreexemptionCentral Exciseroll papersheet paperancillary process

Judgment

STAR PAPER MILLS LTD. .>.,
A
v.
COLLECTOR OF CENTRAL EXCISE, MEERUT

AUGUST 22, 1989.

[S. RANGANATHAN, N.D. OJHA AND J.S. VERMA, JJ.] ).-
B

Central Excises and Salt Act, 1944: Section 2(f), 3 and 35L-
'Manufacture' includes any process incidental or ancillary to the com-
pletion of manufactured products-Whether paper core is used as a
component part in the manufacture of paper rolls. ")r_
c The appellant company carried on the business of manufacture
and sale of paper. It claimed exemption from payment of excise on
~
paper core which, accordingly to the appellant, was used in the
manufacture of paper. The case of the appellant was that the paper
cores used in the manufacture of paper constituted "component parts"
D within the meaning of Notification No. 201/79 dated June 4, 1979 as
amended. The case of the respondent on the other hand was that the
paper cores were really used by the appellant as packing material after
the paper bad already been manufactured for taking it to the market
and did not constitute "component parts" of paper. Tbe Assistant Col· r-
lector, Central Excise, rejected the claim of the appellant but its claim
E on appeal as regards exemption from duty on paper cores was allowed

"
by the Appellate Collector. The Customs, Excise and Gold (Control)
Appellate Tribunal however allowed the appeal of the Revenue. ...
Partly allowing the appeal, this Court, ,
F HELD: I. Even though the term "component parts" has not
-i
been defined either by the Act or by the Notification, the term
"manufacture" has been defind in section 2(f) of the Central Excises
and Salt Act, 1944. This definition contemplates that "manufacture"
includes any process, incidental or ancillary to the completion of a
manufactured product. [8950]
G
2. In the absence of any definition of the term "component I
parts" it is permissible to refer to the dictionary meaning of the word ~
"component". Accordingly to the dictionary meaning, the word "com-
ponent" inter alia means a constituent part. [895F]

H 3. If the use of paper core is necessary in ''any process incidental
892
STAR PAPER MILLS v. COLLECTOR OF C.E. 893

or ancillary to the completion of" paper as marketable goods and it A 1
would consequently be commercially inexpedient to sell paper without
the use of paper core, it would certainly be a constituent part of paper
and would thus fall within the purview of the term "component parts"
used in the Notification. [896F]

Mis J.K. Cotton Spinning & Weaving Mills v. Sales Tax Officer, B
Nagpur and another, [1965] 1 S.C.R. Page 900 and Bhor Industrid
Ltd. Bombay v. Collector of Central Excise, Bombay, [1989] 1 SCC
602, referred to.

4. Paper is made (1) in the form of rolls and (2) in the form of
sheets and the paper which is sold in the form of sheets is cut in desired
sizes. Even though rewinding has to be done both for manufacturing c
roll paper as well as sheet paper, use of Pl\Per core in rewinding is
necessary 011ly with regard to manufacture of roll paper, inasmuch as it
is the paper as rolled on paper core which is delivered to the cus-
tomer in the form of rolls and unless in the process of rewinding
paper core is used, paper cannot come out of the machine in rolls D
so as to be sold as a marketable commodity known as roll paper.
The use of paper core, tJowever, is not necessary for the manufac-
ture of paper sheets. [897E, 899G-900A]

5. Use of paper core would come within the purview of the ex-

-
pression ••any process incidental or ancillary to the completion of man- E
nfactnred products" nsed in the definition of the term "manufacture"
in section 2(f) of the Act and for the same reason paper core would also
be constituent part of paper and would thus fall within the term "com-
ponent parts" used in the Notification in so far as manufacture of paper
in rolls is concerned. Paper core, however, cannot be said to be used in
the manufacture of paper in sheets as component parts. [900E-F] F

CIVIL APPELLATE JURISDICTION: Civil Appeal No. 3474
of 1988.

From the Judgment and Order dated 10.5.1988 of the Customs
Excise and Gold (Control) Appellate Tribunal, New Delhi in Appeal .G
No. E/62/85-C.

Harish N. Salve, Mrs. M. Sud, Ms. Aruna Jain and Praveen
Kumar for the Appellant.

B. Dutta, Additional Solicitor General, T.V.S.N. Chari and P. H
Parmeshwaran for the Respondent.
894 SUPREME COURT REPORTS [1989] 3 S.C.R.

A The Judgment of the Court was delivered by .J.\
OJHA, J. This appeal under section 35L of the Central Excises
and Salt Act, 1944 (hereinafter referred to as the Act) has been prefer-
red against the order dated June 28, 1988 of the Customs Excise and
Gold (Control) Appellate Tribunal, New Delhi. The appellant carries
B on the business of manufacture and sale of paper. On the plea that in ).-
the manufacture of paper the appellant uses paper cores, exemption
from payment of excise on such paper cores was claimed by it on the
basis of a Notification No. 201/79 dated June 4, 1979 as amended by
Notification No. 105/82 dated February 28, 1982 (hereinafter referred .
•
to as the Notification). The Assistant Collector, Central Excise y_
c rejected the claim of the appellant but its claim on appeal as regards
exemption from duty on paper cores was allowed by the Appellate
Collector. Aggrieved by that order the Collector of Central Excise,
~
Meerut, preferred the appeal in which the order which is the subject-
matter of the present appeal, was passed.

D The Notification on the basis of which exemption was claimed by
the appellant inter alia provides: "the Central Govermnent hereby
exempts all excisable goods (hereinafter referred as "the said goods"),
on which the duty of excise is leviable and in the manufacture of which
any goods falling under Item No. 68 of the First Schedule to the
Central Excises and Salt Act, 1944 (1 of 1944) have been used, as raw r
E materials or component parts (hereinafter referred as "the inputs"),

-
from so much of the duty of excise leviable thereon as is equivalent to
the duty of excise already paid on the inputs."

As is apparent even from the order of the Tribunal the details of
the use of paper cores in the manufacture of paper as set out by the
F appellant on the basis whereof the exemption was claimed by it read as -1'
hereunder:

"Paper cores: Paper cores are used in paper mill on
re-winding and cutting machines. The full width of paper
manufactured on paper machine is cut in different sizes of
G reel and sheets according to customer's requirement. To
cut the parent roll of paper manufactured on paper
machine which is wound on steel-shell into small reels suit- ,,
able for cutter machine, the paper is re-wound on 'paper
cores' fitted on a shaft on re-winding machine. The reels
thus re-winded on paper cores can be easily cut into sheets '
H on cutter_machine into required size or sent to customers as
;: ;:~

1
'
't
STAR PAPER MILLS v. COLLECTOR OF C.E. (OJHA, J.l 895

reels as such, there is no other use of paper cores except
~ their use in re-winding and cutting machine in paper mills".
A
'i
,. On the basis of the details aforesaid the case of the appellant was that
the paper cores constituted "component parts" within the meaning of
~ the Notification entitling it to the exemption granted by the said
__ Notification. The case of the respondent on the other hand was that B
paper cores were really used by the appellant as packing material after
-"<
the paper had already been manufactured for taking it to the market
' and did not constitute component parts of paper. Before dealing with
j respective submissions made by learned counsel for the pa~ties it may
F
be pointed out that it is not in dispute that the excise duty was payable
\r at the relevant time separately both on paper and paper core under
different tariff items of the First Schedule to the Act and it has also not c
J
~
been disputed by the respondent that if paper core fell under the term
"component parts", the appellant would be entitled to the exemption
as claimed by it and contemplated by the Notification. The short ques-
tion which, therefore, arises for consideration in the instant appeal is
•I whether paper core is used in the manufacture of paper as component D
part. Even though the term "component parts" has not been defined
either by the Act or by the Notification the term "manufacture" has
been defined in section 2(f) of the Act. This definition inter alia con-
templates that "manufacture" includes any process, incidental or
i
ancillary to the completion of a manufactured product. Section 3 of the
Act which is the charging section contemplates levy and collection of E
duty of excise on all "excisable goods". The First Schedule to the Act
specifies the excisable goods under various tariff items. In the absence
t,.. of any definition of the term "component parts" it is permissible to
refer to the dictionary meaning of the word "component". According
to the Webster Comprehensive Dictionary, International Edition the

"
r-
word "component" inter alia means a constitutent part. The term
"manufacture", as already indicated above, according to its definition
in the Act includes any process incidental or ancillary to the comple-
F

tion of manufactured product. In this context what has to be con-
sidered is whether in the manufacture of paper, paper core is used as a
constituent part and is necessary to be used in "any process incidental
or ancillary to the completion of a manufactured product"-namely G
paper in the instant case.
~ In Mis J.K. Cotton Spinning & Weaving Mills Co. Ltd. v. Sales
Tax Officer, Kanpur and Another, (1965] 1 S.C.R. Page 900 while
dealing with the expression "in the manufacture of goods" used in
section 8(3)(b) of the Central Sales Tax Act, 1965 and Rule 13 framed H
896 SUPREME COURT REPORTS [1989] 3 S.C.R.

under the Act it was held that the said expression "would normally
A
encompass the entire process carried on by the dealer of converting "'· . ti'i

raw materials into finished goods. Where any particular process is so
integrally connected with the ultimate production of goods that but for
that process, manufacture or processing of goods would be commer-
cially inexpedient, goods required in that process would, in our judg-
B riieiit, fall within the expression." It was further held: "In our judg- ~-
merit if a process or activity is so integrally related to the ultimate
manufacture of goods so that without that process or activity
•
manufacture may, even if theoretically possible, be commercially inex-
pedient, gbods intended for use in the process or activity as specified in •
Rule 13 will qualify for special treatment." (Emphasis supplied) -y'
c In Bhor Industries Ltd., Bombay v. Collector of Central Excise,
Bombay, [ 1989] 1 S.C.C. Page 602 while dealing with excise duty it
~
was held:
I
"Therefore, the first principle that emerges is that excise \•
D was a duty on goods as specified in the schedule. In order to
be goods an article must be something which can ordinarily
come to the market and is brought for sale and must be
known to the market as such. Therefore, the marketability
in the sense that the goods are known in the market or are
capable of being sold and purchased in the market is
essential."
r
E

It is in this background that the use of paper core in the process
of manufacture of paper has to be considered. If it is found that the use
of paper core is necessary in "any process incidental or ancillary to the
1
completion of" paper as marketable goods and it would consequently
F be commercially inexpedient to sell paper without the use of paper ~
core, it would certainly be a constituent part of paper and would thus
fall within the purview of the term "component parts" used in the
Notification. This takes us to the process of manufacture of paper. The
process of paper manufacture is to be found at pages 230 to 235 of Part
17 of Encyclopaedia Britannica. The process of paper manufacture by
paper making machine is contained at pages 232 onwards. After refer- 'I
G
ring to the various stages of manufacture of paper it is stated: I
~
•
"After the drying comes the calendering and there are
usually two or more sets or stacks of calendering rolls,
according to the grade of surface required. These calenders i'
H consist of vertical stacks of chilled iron rolls, generally five
STAR PAPER MILLS v. COLLECTOR OF C.E. [OffiA, !.] 897

in a stack, which revolve on one another and some of which
are bored for heating by steam; pressure is applied to them «
A
at will, by adjusting levers at the top of each stack. Finally
the paper passes to cooling rolls, where the paper can be
cooled by water spray if necessary and is then wound on to
I a reel." ;

~-\ B
Thereafter at page 234 it is stated:

"Paper, though made in the roll on the machine, is usually
~
sold in the form of sheets. A number of reels of paper, on
-~-
their spindles, mounted in a stack, are fed, as a pile of
\ webs, between two rollers: a series of revolving knives slits
) them longitudinally as they emerge from between the rol- c
lers, in effect into strips which are cut again transversely by
the scissors action of a movable upper knife, working
periodically against a lower fixed knife. The cut sheets fall
on to an endless felt for stacking."
D
At the bottom of the same page it is stated:

"Paper is sold in sheets of different sizes and is made up
-~. into reams containing from 480 to 516 sheets in Great Bri-
tain, 500 in the United States; these sizes correspond to
different trade names, as foolscap, demy, royal, etc." E
lt,is thus apparent that paper is made (1) in the form of'1"olls and
(2) in the form of sheets and the paper which is sold in the form of
,_ sheets is cut in desired sizes by taking recourse to the process referred
to above.
' F
Chapter XIII of the Story of Papermaking by Edwin Sutermeis-
ter 1954 Edition .contains the process known as calendering and finish-
;ng. At pages 183 and 184 it is stated:

"The paper from the machine, no matter what its finish,
goes next to the reels which form large rolls the full width
G
'} of the machine. The reels are so arranged that when one
cylinder is full another can take its place while the paper
machine is running continuously. The full cylinder is then
rewound at higher speed so that it may again be ready when
needed by the paper machine. On rewinding the paper is
trimmed on the edges and if desired is slit into any number H
898 SUPREME COURT REPORTS [1989] 3 S.C.R.

of narrower rolls. . . . The cores on which the paper is
A
wound will depend to some extent on what happens to the
paper next. If it is delivered to the customer in rolls as it
comes from the rewinder the cores are apt to be of heavy
board stock, wound and pasted on a mandrel: if the rolls of
paper pass to another part of the same plant for further
B treatment the cores are likely to be of iron pipe, which can
be used over and over."

With regard to the us.e of roll paper-it is stated at page 185:

"Roll paper is very widely used in many lines of work.
Newspapers are printed, cut and folded direct from rolls,
c each of which may weigh 1400 pounds or more; much craft
paper is sold to be used directly from the roll in wrapping
goods, while tremendous quantities are used to feed the
machines making paper bags. Paper for the conventional
coating operations is delivered to the coating plant in roll
D form: and considerable quantities of white paper are
printed continuously from rolls. These are only a few of the
more obvious uses of roll paper.

All roll paper must reach the consumer in perfect condition
if it is to be of the greatest use. It must be carefully wrap-
E ped and the ends of the rolls protected by stout heads to
keep edges of the paper from being injured."

As regards paper which is to be used in sheet form it is stated at
pages 190 and 191:

F "Paper which is to be used in sheet form may be so pre-
pared by passing directly from the reel stand of the paper
machine to a cutter, layboy and sheet counter in line with
the machine and attended by the paper machine crew. This
system is used for coarse papers which do not need sorting,
and it is common on machines which run off pulp for
G chemical or papermaking use. As a more common alterna-
tive the rolls go to independent cutters from the rewinders
or the supercalenders, according to the finish the final
paper is to have. The rolls are placed on reel stands which
are constructed to ho.Id up to twelve or more. Any one of
these may be cut singly, or all may be cut together as
H desired. From the reels the paper passes through a cutter
. STAR PAPER MILLS v. COLLECTOR.OF C.E. [OJHA, J.] 899.

which has a knife on a revolving drum acting in a shearing
manner against a fixed bed knife. E~ch time the drum A
revolves the knife cuts a sheet from· the web of paper being
fe\J continuously at constant speed, and the length .of the l•f;
sheet cut is regulated by altering the speed at which the '
revolving knife turns. Cutters are also designed to split the
,,;1 paper into the right width of roll, and to trim the edges, if B
this has not already been do~e at the rewinder.

The paper leaves the cutter on traveling tapes and
goes to a layboy which automatically jogs the sheets into

~· uniform piles. These layboys take the place of operatives
who formerly did the same work, and enable higher cutter
speeds to be employed." c
;:.
In the Dictionary of Paper (Fourth Edition, published under the
Auspices and Direction of the American Paper Institute, Inc.) the
purpose of rewinding is stated thus at page 346:
D
"Rewinding: The operation of winding the paper accumu-
lated on the·reel of a paper machine onto a core to a tightly
wound roll suitable for shipping or for use in the finishing
or converting department. During rewinding, defective
paper in the reel is usually, removed and breaks in the sheet
are spliced and marked." E
In.Pulp & Paper Sctence & Technology (Vol. 2, edited by C. Earl
Libby) it is stated at page 271. · ·
,_ "The prime purpose of the paper-machine rewinder is to
split th~ sheet into the-required widths, to provide rolls of F
paper having the. correct diameter, and to produce firm,
tightly wound rolls of paper that can be unwound into high-
speed printing presses with few tension problems."

What becomes obvious from the processes referred to above,
therefore, is that t!ven though rewinding has to be done both for G
'' manufacturing roll paper as well as sheet paper, use of paper core in
t rewinding is necessary only with regard to manufacture of roll paper,
inasmuch as it is the paper as rolled on paper core which is delivered to
the customer in the form of rolls and unless in the process of rewinding
paper core is used, paper cannot come cut of the machine in rolls so as
to be sold as a marketable commodity known as roll paper. The use of H
900 SUPREME COURT REPORTS [1989] 3 S.C.R.

paper core, however, is not-necessary for the manufacture of paper
A
sheets. As stated at page 184 of the Story of Papermaking (supra), the
core on which the paper is wound will depend to some extent on what
happens to the paper next. If it is delivered to the customer in rolls as it
comes from the rewinder the core is apt to be of heavy ·board stock
wound and pasted at mandrel. If, however, the rolls of paper are not
B be delivered to the customer in the form of rolls as such and the rolls of
paper are to pass to another part of the same plant for further treat-
ment the core is likely to be of iron pipe which can be used over and
over. Consequently core of iron pipe is more likely to be used in the
normal course for further treatment in the plant which will include the
process of cutting the paper into sheets. Inasmuch as core of iron pipe
c
can be used over and over, it cannot be said that the use of paper core j
is necessary for the rewinding of paper meant to be cut into sheets. It
may be that for the sake of convenience paper core may be used by
some manufacturer even for rewinding of such paper as is meant to be
cut in sheets but in that case it would at best provide more convenience
to such manufacturer but for that reason paper core will not become a
o constitutent part of paper manufactured in sheets.

In view of the foregoing discussion, we are of the opinion that
use of paper core is necessary for rewinding of paper if it is delivered to
the customer in rolls and would come within the purview of the expres-
sion "any process incidental or ancillary to the completion of a
E manufactured product" used in the definition of the term "manufac-
ture" in section 2(f) of the Act and for the same reason paper core
would also be constituent part of paper and would thus fall within the
term "component parts" used in the Notification in so far as
manufacture of paper in rolls is concerned. Paper core, however, can-
not be said to be used in the manufacture of paper in sheets as com-
F ponent part. We are conscious that the relevant tariff item uses the
word "paper" but since paper in rolls and paper in sheets are nothing
but different forms of paper, both of them would be excisable goods as
paper under the relevant tariff item.

In the result, this appeal succeeds and is allowed to this extent
G that it is held that in the manufacture of paper rolls delivered to the
customers for use as roll paper, paper core is used as component part.
The orders of the authorities below are modified to this extent. In the
circumstances of the case, however, the parties shall bear their own
costs.

H R.S.S. Appeal allowed.